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State Actions in Organized Markets

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6 carbon and rebuke the states for structuring and implementing programs in this way. c. Ohio Ohio remains at the leading edge of the ‘around market’ solution and baseload power exit crisis. There have been three relevant developments in Ohio: (1) the continued push for re-regulation by utilities; (2) continued action by the Public Utilities Commission of Ohio (PUCO) to address these issues; and (3) power plant sales driven by a desire of utilities serving the state and region to exit competitive generation entirely. In a third quarter earnings call, FirstEnergy President Charles Jones emphasized the utility’s continued interest in pursuing re-regulation of the electricity market in Ohio. 23 Jones noted that operational challenges and lost revenue from the company’s Davis-Besse and Perry nuclear power plants have created a sense of urgency in proposing legislation to reintegrate the utility and its subsidiary, FirstEnergy Nuclear Operating Company (FENOC). Jones’ comments have been accompanied by action on the legislative front in Ohio. American Electric Power (AEP) has been leading the effort by engaging policymakers in related discussions, and now FirstEnergy and Dayton Power & Light (DPL) seem poised to join the charge. 24 In light of an uncertain future for the continued operation of the Davis-Besse, Perry and other plants, expedited legislation aimed at re-regulation is a top priority for Ohio utilities. 25 This legislative effort is not 23 FirstEnergy Q3 Earnings Call Transcript, available at http://seekingalpha.com/article/4019708-firstenergy-fe-q3- 2016-results-earnings-call-transcript?part=single 24 Robert Walton, AEP: Restructuring Ohio markets will require IOU collaboration, Utility Dive (Sept. 13, 2016), available at http://www.utilitydive.com/news/aeprestructuring-ohio-markets-will-require-ioucollaboration/426152/ 25 Christopher N. Slagle et. al., Insights & Resources: 2016 lame duck summary and 2017 budget preview, Bricker & Eckler (Dec. 28, 2016), available at http://www.bricker.com/insightswithout its opponents. An independent power producer has threatened to cancel a gas-fired generation project known as the Trumbull Energy Center if re-regulation legislation is successful. 26 Legislators will grapple with these kinds of threats, while re-regulation proponents simultaneously raise the potential closures and sales of baseload power plants, if and when a re-regulation bill is introduced in the Ohio Legislature. To that point, there are many moving parts to the debate in Ohio, including a transactional component to the re-regulation effort. Both AEP and First Energy have been selling competitive generating assets to reduce exposure to organized electricity markets. Between serious legislative conversations and efforts and competitive generation sell-offs worth billions of dollars, it is increasingly apparent that the re-regulation push in Ohio is more than just talk or threats to obtain approval of ‘around market’ solutions. It is a desirable regulatory outcome for utilities concerned about the future of their generation assets given the issues in organized electricity markets. At the PUCO, despite FERC’s decision to block PUCO-approved affiliate power purchase resources/publications/2016-lame-duck-summary-and-2017- budget-preview 26 Virginia Shank, Energy regulations play role in plant development, Tribune Chronicle (Jan. 15, 2017), available at http://www.tribtoday.com/news/local-news/2017/01/energyregulations-play-role-in-plant-development/ (“Development of the proposed Trumbull Energy Center ‘will stop immediately’ if Ohio returns to a system of regulating electric rates, the president of Clean Energy Future said. Bill Siderewicz described ‘ongoing efforts’ by major utility companies to re-regulate the state’s energy policies as a ‘major stumbling block’ for his company’s plans to build a second $900 million, gas-powered electric plant next to the Lordstown Energy Center now under construction on Henn Parkway. ‘If we feel legislators are responding positively to (FirstEnergy’s) ‘re-reg’ push we will stop the Trumbull Energy Center’s development effort immediately … and (FirstEnergy) will have effectively killed a $14 billion benefit to the Valley,’ Siderewicz said. Joined by Lordstown Mayor Arno Hill at the Lordstown Administration Building, Siderewicz on Wednesday officially announced Clean Energy’s plan to develop the TEC as a twin plant to the Lordstown Energy Center.”) 4818-3925-2544.3

7 agreements, FirstEnergy, AEP and DPL have refiled modified ‘around market’ plans designed to avoid the prior result at FERC. For example, a part of FirstEnergy’s Electric Security Plan (ESP), approved in an October 2016 Order by PUCO, includes a new Distribution Modernization Rider (Rider DMR) that authorized the utility to recover $132.5 million per year for three years through charges on customers’ bills. 27 These revenues must be allocated to grid modernization improvements, but critics of Rider DMR allege that the Order does not specify how the recovered costs must be used to modernize the grid, and as such could indirectly subsidize the company’s coal and nuclear generation. Said another way, the Rider DMR is an ‘around market’ solution. d. Connecticut ‘Around market’ solutions are under discussion in Connecticut as well. Connecticut’s only nuclear power plant, Millstone Power Station, is a 2020 MW facility owned by Dominion. It produces enough electricity to power 2 million homes, and approximately half of the electricity produced by Millstone is consumed in Connecticut. Dominion notes that Millstone supports 3,900 jobs and provides approximately $1.5 billion in economic benefits to Connecticut. 28 Accordingly, preserving its operation is a key political issue in Connecticut. In the state’s 2016 legislative session, lawmakers put forth a bill aimed at preserving and strengthening nuclear power. S.B. 344 would have initiated a solicitation process whereby the Department of Energy and Environmental Protection (DEEP) commissioner could issue solicitations for certain power generating facilities, including nuclear, to sell power or capacity to electric distribution companies. Passed in the Senate, the bill was ultimately tabled in the House 27 Public Utilities Commission of Ohio, Case No. 14-1297- EL-SSO, Fifth Entry on Rehearing (Oct. 12, 2016), available at http://dis.puc.state.oh.us/TiffToPDf/A1001001A16J12B4113 6G00094.pdf 28 Millstone Power Station Home Page, available at https://www.dom.com/millstone. before the session ended in May. 29 However, this may be the beginning, as opposed to the end, of possible ‘around market’ solutions designed to preserve baseload nuclear power in Connecticut. The state’s Office of Legislative Research published a report outlining the “2017 Major Issues,” noting that the legislature may again consider issues related to bolstering the success of nuclear plants in energy markets during the 2017 session. 30 The report specifically noted that “[n]uclear plant closures around the country have prompted states to consider ways to help struggling nuclear plants to compete in energy markets.” 31 Connecticut is a state to watch in 2017 from an ‘around market’ solution standpoint. To that point, the introduction of S.B. 106, a bill expected to be similar to S.B. 344, is expected soon. 32 e. Observations and the New York/Illinois ‘Around Market’ Template States are beginning to coalesce around the maintenance fee – or backdoor capacity payment – identified in our initial paper. States are also showing some willingness to adopt similar 29 Raised S.B. No. 344, 2016 Gen. Assem., Reg. Sess., (Conn. 2016), available at https://www.cga.ct.gov/asp/cgabillstatus/cgabillstatus.asp?sel BillType=Bill&which_year=2016&bill_num=344 30 Conn. Gen. Assem. Office of Legislative Research, 2017 Major Issues, 2016-R-0296, 2016 Gen. Assem., at 7 (2016), available at https://www.cga.ct.gov/olr/Documents/year/MI/2017MI- 20161209_Major%20Issues%20for%202017.pdf 31 Conn. Gen. Assem. Office of Legislative Research, 2017 Major Issues, 2016-R-0296, 2016 Gen. Assem., at 7 (2016), available at https://www.cga.ct.gov/olr/Documents/year/MI/2017MI- 20161209_Major%20Issues%20for%202017.pdf 32 Jeffrey Tomich, Industry sees ‘snowball effect’ in N.Y., Ill. policy wins, EnergyWire (Feb. 9, 2017) (“The Connecticut General Assembly Energy and Technology Committee on Tuesday held a hearing on S.B. 106. While specific language hasn't been filed, it's expected to be similar to a bill last year that would have allowed Dominion's Millstone Nuclear Power Station to bypass the wholesale market and sell energy and capacity directly to utilities if state officials determine that doing so is in the interest of ratepayers and the environment.”) 4818-3925-2544.3

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